NAFCU Comments on CFPB Mortgage Forms

NAFCU Vice President of Regulatory Affairs Carrie Hunt has sent a letter to Elizabeth Vale, assistant director of community banks and credit unions at the Consumer Financial Protection Bureau, regarding the agency’s most recent draft of prototype mortgage disclosure forms.

In the letter, Hunt says that the draft forms represent an improvement over the prior versions the agency had put out for comment, and that NAFCU prefers the Sassafras Bank form as it is slightly easier to read. However, she says that NAFCU still has concerns with certain aspects of the forms.

“First, dividing the costs between settlement fees and closing costs is helpful,” the letter said. “Second, the division of costs within those categories is easy to read and is separated in a fashion that makes more sense than the Mimosa disclosure. Page 3 of the Mimosa disclosure is clearly based on the existing Housing and Urban Development (HUD) settlement form, commonly known as the HUD-1. Accordingly, page 3 of Mimosa assigns a numeric identifier to each fee listed. On balance, this system detracts more than it adds to the disclosure. In short, page 2 of Sassafras presents the exact same information as that on page 3 of Mimosa, in a manner that is much easier to comprehend and that flows more logically.”

Hunt goes on to say that the Mimosa form would be helpful to add to the Sassafras form, as both forms show several items totaling $563 that are to be paid by the borrower and which are separated from the other fees the borrower pays. She added that the Mimosa form does a better job of explaining why the sum of $563 has been separated out – mainly because the borrower owes that total outside of settlement and closing.

“In the Sassafras form it is not at all clear why those fees have been placed in a different column despite the fact that the borrower is still responsible for all of them,” the letter said.

Hunt added that NAFCU also remained concerned with the disclosure regarding the lender’s cost of funds on page 5.

The disclosure does not provide any useful information and, in some cases, may be misleading,” she wrote. “First, NAFCU is unsure of what value the disclosure regarding lender’s cost of funds will provide to borrowers. The implication of the disclosure is that the lender is making a profit spread between the cost of funds and the rate the borrower is paying. Important components that make up the ultimate price, such as interest rate risk and credit risk are ignored by the disclosures and consequently will be ignored by borrowers.

“The purpose of the Know Before You Owe project is to simplify and clarify disclosures for consumers. Instead, this disclosure provides the consumer additional information that they likely will not understand and that has only a tangential bearing on the cost of the mortgage.”